Atlanta Fed: Illegal Workers Give Firms an Edge

It might seem obvious, but does hiring illegal immigrants give employers an edge over competitors? Or does the risk overcome the potential reward?

Researchers at the Atlanta Fed took up this question and, based on data from the state of Georgia, found that hiring illegals not only gives some companies an edge but hiring legal workers gave companies a “distinct disadvantage,” including a higher risk of going out of business altogether.

The paper, published by at Federal Reserve Bank of Atlanta, concluded that employing undocumented workers reduces the risk of “exiting,” economist-speak for closing down, by 19 percent, although the impact varied greatly among sectors.
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The businesses that did better using illegals included transportation and utilities, professional and business services, and leisure and hospitality. Highly skilled jobs in financial services, information, and education and health were less likely to benefit from the practice.

“Interestingly, there is an insignificant impact on exits from employing undocumented workers in agriculture, construction, and manufacturing,” they wrote. “These are sectors that, behind leisure and hospitality, have the largest shares of firms employing undocumented workers.”

Hiring illegals tended to help more if the practice is common in the business’s sector. And it tended to be a better bet for companies if the immigrant’s skill levels are low and work is physically hard, they wrote.

“The answer to this question has implications for immigration policy,” the researchers said. “If wages for both documented and undocumented workers are being determined in a competitive labor market, then greater restrictions of unauthorized immigration will unambiguously lead to higher wages, increased production costs, and likely higher prices paid by consumers.”

The U.S. Labor Department recently issued new rules that the Obama administration hopes will pave the way toward recognizing illegal immigrants as guest workers and putting more of them on the books in some form.

Known as H-2B, the program creates a national registry for employers to post jobs that could be filled under guest worker rules while encouraging them to hire U.S. citizens by expanding to three weeks the time they must first advertise jobs to legal hires.

“Overall, we think these rules are a huge step forward,” Jennifer J. Rosenbaum of the National Guestworker Alliance told The New York Times. “They remove incentives to try to get around hiring an unemployed American by hiring exploitable guest workers instead.”